2017 New Grad Edition - 53

to swallow without knowing what your
expenses look like.
For that reason, most new dentists will
be well served by using the Revised Pay As
You Earn (REPAYE) program in their first
year. In most cases, you can use it to get an
interest subsidy.
Once the government finds out that
you make a decent income in your second
year, you'll want to consider refinancing
companies' offers.
Make sure you check at least three
different lenders and shop around for the
best rates.

How should I be
making payments
if I'm an associate?
If you graduated with less than $350,000
in dental school loans, I recommend that you
get aggressive with repayment right away.
Either refinance, or get on the REPAYE
program and pay extra toward the loans
with the highest interest rates.
If you owe more than that, then you
really need to look at the math behind loan
forgiveness. You can use the government's
income-driven repayment plans to pay a
percentage of your income each year. At the
end of 20-25 years, depending on the plan
you choose, you'll have the balance forgiven.
However, there's a catch: You'll have
that balance added to your income in the
year of forgiveness, and you'll owe taxes on
that balance.
If you make a bunch of money as a
practice owner, then using income-driven
repayment long term will just cost you a
lot of extra interest payments. If you're
making a modest income long term, then
you need to choose between the REPAYE
program and the Pay As You Earn (PAYE)
program, which caps your monthly federal
student loan payments at 10 percent of your
discretionary income.
Max out your retirement accounts, save
$200-$500 every month for the tax bomb
you'll be hit with at the end of the 20-25
years ... and cross your fingers that they don't
repeal those programs before you're done.

How do I handle my
student debt if I
want to buy a practice?
A lot of new grads tell me they just got
off the phone with a bank that told them
they'll need all the gold in Fort Knox in
their checking account before they can get
a practice loan.
I'm joking, of course, but how do you
think about paying down student loans when
you want to buy a practice ASAP and need
a bunch of savings to do it?
In general, after a productive year as
an associate you should be able to get a
practice loan with 3 percent of the practice
purchase price in the bank. That means if
you want to buy a $600,000 practice, you
need $18,000 in the bank.
Don't worry about having way more
than that. If you want to own a practice,
use that 3 percent equation and divide the
amount by the number of months you'll
need to save until you can become your
own boss. Set aside that amount every
month, and then pay as much of what you
can from what's left to reduce the balance
of your student loans.

How will my dental
student debt affect
my spouse?

However, if you had a spouse who makes
$120,000 a year in corporate America and has
no student debt, your future debt-to-income
ratio would drop below 2:1. (The debt would
still be $450,000, but your household income
is now $320,00, for a ratio of 1.4:1.) That's
a clear refinancing situation.
If both of you have similar earnings
trajectories and debts, then being married
doesn't affect your loans much. If one has
a small debt load and the other has a large
debt load, plan as a couple, not two separate
individuals. If you don't, you'll just cost
yourselves money.
You might have heard that you can
file taxes separately to keep your payments
down. While that's true, usually the extra
tax costs from filing separately outweigh
the lower payments.
Once you're married, student loans
affect your spouse no matter what you do.
Don't feel guilty! Make a budget together,
and craft a plan you both feel good about.

Planning makes all the difference
Whatever you do, don't bury your head
in the sand and pretend the dental school
debt isn't there. By attacking it head-on
with a solid plan, you'll make the most
of your educational investment and set
yourself up for financial freedom. n

Most dentists use either the IBR,
REPAYE or PAYE plans to pay on their
loans during their first year. Those plans
are based on your household, not individual,
income and student debt.
My rule of thumb for going for refinancing instead of forgiveness is having a
debt-to-income ratio below 2:1 within five
years of graduation. Factor your spouse's
income into that equation.
Example: You've got $450,000
in dental school debt and plan on
Ask the author a question
eventually earning $200,000 a
on our message boards!
year as a practice owner. If you
Travis Hornsby, the founder of Student Loan
were single, you might sign up
Planner, posts regularly in the "Financing School
and Loan Repayment" forum, one of several
for PAYE and put away money
that Dentaltown hosts for dental students. To
to pay the taxes that would be
access them or to ask Hornsby a question, head to
due in 20 years when the rest
dentaltown.com and click "Message Boards," then
"Dental Students and Residents."
of the balance is forgiven.

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53
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Table of Contents for the Digital Edition of 2017 New Grad Edition
